Delhi Development Authority Vs. Skipper
Construction Company (P) Ltd. & Anr [1996] INSC 655 (6 May 1996)
Jeevan
Reddy, B.P. (J) Jeevan Reddy, B.P. (J) Paripoornan, K.S.(J) B.P. Jeevan Reddy,J.
CITATION:
1996 AIR 2005 1996 SCC (4) 622 JT 1996 (4) 679 1996 SCALE (4)202
ACT:
HEAD NOTE:
A plot
of land was put to auction by the Delhi Development Authority [D.D.A.] in
October 1980. Skipper Construction Company [Skipper] offered the highest bid in
A sum of Rs. 9.82 crores. It was supposed to be a record bid at that time.
According to the conditions of auction, twenty five percent of the amount was
payable immediately and the rest within ninety days. Skipper deposited the
twenty five percent but did not deposit the balance. It asked for extension
repeatedly and it was granted repeatedly. As many as seven extensions were
granted spread over the period January, 1981 to April, 1982. Since Skipper
failed to deposit the balance consideration even within the last extended
period, proceedings were taken for cancelling the bid. Skipper went to Court
and on May 29, 1992 obtained stay of cancellation*.
D.D.A. applied for vacating the stay.
Nothing
happened but usual adjournments. Skipper was simultaneously making
representations to D.D.A. to give him further time. In January 1983, D.D.A.
constituted a committee to consider the request of Skipper and other similar
requests and to devise a formula for ensuring timely payments by such
purchasers. The committee reported that cancellation of bids in such matters
usually land D.D.A. in protracted litigation and
------------------------------------------------------------ *We are unable to
see what jurisdiction or justification the court could have for passing such an
order in an ordinary case of sale and purchase of property, more so when
Skipper had failed to pay the balance consideration not only within the time
stipulated but despite several extensions.
suggested
that to enable them to pay the monies due to D.D.A., the purchasers be given
permission to commence development/construction on the plot [though possession
as such be not delivered] subject to the condition that the property in the
land would remain with the D.D.A. until the entire consideration is paid; if
the entire consideration is not paid according to the revised schedule, the
D.D.A. should be entitled to re-enter the plot and take it over along with the
construction, if any, made thereon. [The idea was to enable the purchasers to
undertake development and go on with the construction which would make it easy
for them to sell the space in the building being constructed and thus raise
funds for paying to D.D.A.] The committee recommended further that a revised
agreement be obtained from such purchasers incorporating the above terms. When
called upon to execute the revised agreement, in 1984, Skipper raised all sorts
of objections and executed it only in the year 1987. Even before permission to
enter upon the plot and to make construction thereon was granted under the
revised agreement, Skipper appears to have been selling the place in the
proposed building to various persons and receiving monies. Once it got the
permission to enter upon the plot and to make construction thereon, it became
all the more easy for it to sell the space in the proposed building. It did not
pay the first instalment under the revised agreement in time but only after
some delay. It did not pay the second instalment. Bank guarantees furnished by
it in terms of revised agreement were also found to be defective. Every time
the D.D.A. thought of cancelling the agreement on account of the said defaults,
an argument was put forward that it would cause great hardship to hundreds of
persons who have purchased space in the proposed building and that they would
be deprived of their hard-earned monies.
Skipper
has been making some small token payments from time to time meanwhile. While
the endless correspondence and discussions were going on between Skipper and
D.D.A., Skipper went to Delhi High Court by way of a writ petition, C.W.No.2371
of 1989, asking for a writ of mandamus to the D.D.A. to sanction the building
plans or in the alternative to grant permission to him to start construction at
his risk. On March 19,
1990, the High Court
passed an order permitting Skipper to commence construction in accordance with
the sanctioned plans subject to deposit of a sum of Rupees twenty lakhs in two instalments
and Rs.1,94,40,000/- within one month. Against the said order, D.D.A. came to
this Court by way of Special Leave Petitions (C) Nos. 6338 and 6339 of 1990.
Meanwhile, Writ Petition (C) No.2871 of 1989 came up for final hearing on December 21,1990. The Delhi High Court made an order
on that day directing Skipper to pay to D.D.A. a sum of Rs. 8,12,88,798/-
within thirty days and to stop all further construction with effect from
January 9, 1991 till the said payment was made. It was provided that in default
of such payment, the licence [revised agreement dated August 11, 1987] would stand determined and D.D.A.
would be entitled to re-enter the plot. Reasons for the order were given on January 14, 1991.
Skipper
failed to deposit the amount as per the direction of the High Court. It
approached this Court by way of Special Leave Petition (C) No.196 of 1991. On
January 29, 1991, this Court grantee an interim order subject to Skipper
depositing Rs.2.5 crores within one month and another sum of Rs.2.5 crores
before April 8, 1991. Skipper was expressly prohibited from inducting any
person in the building and from creating any rights in favour of third parties.
Inspite of the said prohibitory orders from this Courts Skipper- issued an
advertisement on February
4, 1991 in the leading
newspapers of Delhi insisting persons to purchase the
space in the proposed building. It published such, advertisements repeatedly.
Special Leave Petition (C) No. 196 of 1991 was ultimately dismissed on January
25, 1993, whereafter, D.D.A. re-entered the plot and took physical possession
of property on February 10, 1993 along with the building thereon free from all
encumbrances in terms of the revised agreement/licence and as provided in the
orders of the Delhi High Court dated December 21, 1990/January 14, 1991. It
also forfeited the amounts paid till then by Skipper in terms of the revised
agreement and the said Judgment.
January
29, 1991 marks the
watershed in these proceedings. Before the said date, Skipper had collected
about Rupees fourteen crores from various parties agreeing to sell the space in
the proposed building. Even after January 29, 1991, Skipper issued several
advertisements and collected substantial amounts - Rupees eleven crores,
according to its own version from various parties agreeing to sell the space in
the said building. It appears that same space was sold to more than one person
and monies collected.
Not
only did Skipper brazenly violate the orders of this Court dated January 29,
1991 by issuing advertisements, it also filed a suit in the Delhi High Court
being Suit No.770 of 1993 seeking an injunction restraining the D.D.A. from
interfering with its alleged title and possession over the plot and for a
declaration that the re-entry by D.D.A. was illegal and void ! It also sought
for a declaration that it has discharged all the amounts due to D.D.A. and that
nothing was due from it. It obtained interim orders staying re-auction of the plot.
Against
the interim order of the High Court staying the re-auction of the plot, D.D.A.
approached this Court by way of Special Leave Petition (C) No.21000 of 1993.
Noticing the conduct of Skipper, this Court initiated suo motu contempt
proceedings against Tejwant Singh and his wife, Surinder Kaur, directors of
Skipper. They were asked to explain (1) why did they institute Suit No.770 of
1993 in respect of the very same subject matter which was already adjudicated
by this Court on January 23, 1993, i.e., by affirming the orders of the High
Court dated December 21, 1990 and January 14, 1991 and (2) why did they enter
into agreements for sale and create interest in the third parties in defiance
of the orders of this Court dated January 29, 1991. After hearing the
contemnors, this Court found them guilty of contempt of this Court in the
following words:
"We,
therefore, invoke our power under Article 129 read with Article 142 of the
Constitution and order as follows: We sentence contemner- Respondent is Tejwant
Singh to undergo simple imprisonment for six months and to pay a fine of
Rs.50,000 (Rupees fifty thousand only). We further sentence contemner
respondent 2, Surinder Kaur to undergo simple imprisonment for a period of one
month and to pay a fine of Rs.50,000 (Rupees fifty thousand only). In default
of payment of fine, the contemners shall further undergo simple imprisonment
for one month. The payment of fine shall be made within one month from today.
All
the properties and the bank accounts standing in the names of the contemners
and the Directors of M/S. Skipper Construction Co.(Pvt.) Ltd. and their wives,
sons and unmarried daughters will stand attached." At that stag Sri C.Ramaswamys
learned council appearing for the contemnors, requested for deferment of the
sentence of imprisonment subject to conditions indicated by him. On the basis
of the said offer, this Court deferred the sentence of imprisonment subject to
the following conditions:
"(1).
The contemners shall furnish bank guarantee in favour of the Registrar General
of this Court in the amount of Rs.11 crores (Rupees eleven crores only) on or
before 31-3-1995. The guarantee will be of a
nationalized bank or any foreign bank operating in India The bank guarantee will be given
for a period of one year from the date of furnishing the bank guarantee.
(2)
The contemners shall deposit the entire account of Rs.11 crores by a bank draft
in the Registry of this court on or before 30-11-1995.
If
they fail to do so the bank guarantee will become encashable and will be encashed
forthwith after 30-11-1995.
(3) If
the contemners fail to give the bank guarantee by 31-3-1995 as aforesaid, the sentence of imprisonment will become
enforceable at once.
(4) No
application for extension of time either to furnish the bank guarantee or to
make the payment as aforesaid, will be entertained by this Court.
(5)
The contemners shall not leave the country without the express permission of
this Court.
(6)
List of properties given by the contemners is taken on record. The contemners
will also file a list of properties held by their sons and unmarried daughters
within one week from today.
(7) If
and when any property that is attached under this order is sought to be
alienated or encumbered to raise money to pay the liability of Rs.11 crores
stated aboves the contemners will be at liberty to approach the Court for
permission to do so.
(8)
The attachment of the properties and the bank accounts shall stand raised on
the contemners furnishing the bank guarantee as aforesaid.
(9)
The order with regard to the disbursal of the amount deposited will be passed
after the amounts are deposited as aforesaid." The contemnors deposited a
sum of Rupees two crores but failed to deposit the balance. They also failed to
furnish the Bank guarantee. As a result of the said failure, they were
committed to prison. Both the contemnors have served out their sentence.
Meanwhile,
D.D.A. invited tenders for the sale of the said plot of land along with the
construction raised thereupon. The highest offer received was in the sum of
Rupees seventy crores from M/s. Banganga Investments. It was accepted with the
permission of this Court. The consideration has been deposited with the D.D.A.
and the property transferred in favour of the said purchaser. At this stage, the
question arose as to what should be done with the hundreds of persons who have
been duped and defrauded by Skipper and who had parted with substantial amounts
on the basis of the fraudulent and false representations made by Skipper. This
Court made a distinction between persons who purchased the space before January 29, 1991 and the persons who purchased the
space thereafter. The first concern of this Court was to reimburse the persons
who purchased space in the said building prior to January 29, 1991. Their claims were said to be in the region of Rupees
fourteen crores. Accordingly, this Court directed D.D.A. to set apart a sum of
Rupees sixteen crores [out of the said amount of Rupees seventy crores] and to
make it available to such purchasers in accordance with the orders of this
Court. This Court also requested Justice R.S.Lahoti of the Delhi High Court to
act as a one-man Commission to prepare a list of persons who had paid the
amounts prior to January
29, 1991 and to
determine the amount paid by each of them. After an elaborate enquiry, Justice Lahoti
Commission submitted a Report dated February 2, 1996 according to which a sum of Rupees
13,27,37,561.59 crores was paid by more than seven hundred persons. The
Commission asked for directions of this Court whether the said persons should
also be paid the interest in addition to the principal, as claimed by them.
When the report of the Commission came up for orders before this Court, Be
directed that for the time being only principal amount shall be paid to the
said purchasers and that the balance amount along with interest accruing
thereon shall be kept apart. This was done keeping in view the interests of
post-January 29, 1991 purchasers. It is true that these persons did purchase
notwithstanding the warning notice of D.D.A. but it is equally possible that
many of them may have seen only the subsequent advertisements of Skipper and
not the warning notice of D.D.A. published on February 13, 1991.
We may
clarify that our order dated February 12, 1996 does not mean that the
pre-January 29, 1991 are not entitled to interest on the amounts paid by them
for which they have a legitimate claim. We have only kept that claim under
consideration pending further developments in the matter.
We may
also mention that this Court had appointed another Commission headed by Justice
O.Chinndppa Reddy, a former Judge of this Courts to enquire into the role
played by the officials of the D . in the matter and to recommend appropriate
action against them. Justice Chinnappa Reddy Commission submitted a Report
promptly on July 7,
1995, after conducting
a pain-staking and elaborate enquiry, on the basis of which this Court had
directed disciplinary action to be taken against certain officers of the D.D.A.
At
this stages several applications have been filed by the post-January 29
purchasers to sell the properties of Tejwant Singh, his wife and children,
which were attached by this Court under its Order dated February 8, 1995 [in suo
motu contempt proceedings] and utilise the proceeds so realised to reimburse
them along with interest and damages.
Notice
of the said applications was given to Tejwant Singh and Surinder Kaur and to
the sons of the said persons whose properties were attached under the aforesaid
orders. We have heard the parties at length on April 18, 1994.
S/Sri V.A.Bobde
and Dushyant Dave, appearing for the claimants [post-January 29, 1991
purchasers] and Sri Arun Jaitley for the D.D.A. submitted that undergoing the
sentence of imprisonment by Tejwant Singh and his wife Surinder Kaur does not
erase their obligation to pay back the amounts to the said claimants whom they
had deliberately and fraudulently induced into parting with substantial amounts
in clear and direct violation of the orders of this Court. They submitted that
the order of attachment of the properties of Tejwant Singh and his wife and
children was an order independent from the order of punishment imposing
sentence of imprisonment and that the attachment was meant for realizing
amounts necessary for reimbursing the persons defrauded. The attached
properties should now be sold and the proceedings therefrom utilised for paying
the post- January 29,
1991 claimants, it is
submitted. Sri Arun Jaitley further submitted that the claim of the pre-January
29, 1991 purchasers for interest on the amounts paid by them is still there and
has to be kept in mind while passing orders in these applications. It is
submitted that the contemnors should not be allowed to keep or enjoy the fruits
of their contempt and that until all the persons defrauded by Skipper are fully
re-compensated, the contemnor's liability does not cease.
S/Sri Harish
Salve and Rajeev Dhavan, appearing for Tejwant Singh and Surinder Kaur
respectively, took the stand that while all the purchasers, whether pre- or
post-January 29, 1991 should undoubtedly be duly reimbursed, the monies for
that purpose should come out of the monies collected by the D.D.A. on account
of the said plot. Interests of justice and considerations of equity, which are
the guiding factors for this Court while acting under Article 142 of the
Constitution call for such a direction. They submitted that as against Rs.9.82 crores
payable to D.D.A., Skipper has paid more than Rupees fifteen crores in all to
D.D.A. The amounts received from the purchasers has actually been utilised for
raising the construction which has now vested in the D.D.A. in terms of the
orders of the Delhi High Court dated December 21, 1990/January 14, 1991. D.D.A.
thus not only got back the plot of the land but also the construction made by
Skipper free of any encumbrances. They have realised a sum of Rupees seventy crores
by selling the same. In other words, D.D.A. has realised a total of Rupees
eighty five crores on account of the said plot. It is true that they have set
apart Rupees sixteen crores out of that but yet they are in possession of about
Rupees sixty nine crores of the said money. The claim of post-January 29, 1991
purchasers is in a sum of about Rupees eleven crores. An amount of Rupees five crores
is lying with the Court.
Whatever
balance amount is required to pay interest to pre- January 29, 1991 purchasers
and to pay off the post-January 29, 1991 purchasers should come out of the said
amount of Rupees sixty nine crores now with D.D.A. Learned counsel submitted that
on account of various proceedings taken against Skipper and their directors and
the attachment of their properties and the adverse publicity in, that behalf,
it has become impossible for them to generate any monies for depositing in this
Court. They requested that a Commission be appointed to determine the value of
the structure raised by Skipper on the said plot and also to determine the
amount received by Skipper from post-January 29, 1991 purchasers and to direct
that the amount required to pay them should come out of the funds with the
D.D.A.
Sri K.Madhav
Reddy, learned counsel appearing for the two sons of Tejwant Singh and Surinder
Kour [Prabhjot Singh and Prabhjit Singh], submitted that the businesses of the
sons are independent and distinct from their parents and that none of the
monies received by their parents from the aforesaid purchasers has been
diverted to them or to the companies of which they are directors. In facts the
case of the third respondents Prabhjot Singh, is that he has separated from his
father and that the company Technological Park (P) Limited, at NOIDA [of which
he and his wife are directors] has nothing to do with the funds or activities
of their parent.. The fourth respondent. Prabhjit Singh, also submitted that he
and his wife are the directors of TeJ Properties Private Limited, of which his
parents were directors earlier but that the affairs of Tej Properties are in no
way connected with the affairs and funds of his parents. He is a director of Tej
Properties as well as Skipper Properties Private Limited.
D.D.A.
has filed a list of properties held by Tejwant Singh, his wife, Surinder Kaur
and their sons and daughters which according to them really belong to and are
the properties of Tejwant Singh and his wife. They submitted that the various
companies created by Tejwant Singh, his wife and his children are merely fronts
and devices to defraud and defeat the claims of the purchasers and that for
doing complete Justice between the parties the corporate veil should be lifted
and all the said properties which have already been attached, should be
proceeded with to realise the amounts necessary for paying the pre-January 29,
1991 purchasers in full [i e., interest] and also the post- January 29, 1991
purchasers. In particular! Sri Jaitley has pointed out the transaction of lease
relating to he property at No.3, Aurangzeb Road, New
Delhi. The facts
brought to our notice are the following on October 1,1993 Tej Properties (P)
Limited through its Chairman and Managing Directors Tejwant Singh, executed a
lease agreement in favour of "Maple Leaf Trading Company Limited, a
company having its office at 111, Charemont Roads Dublin, Ireland" for a
period of five years [with an option to the lease to have it extended for
another four years] at a rent of Rupees one lakh per month. The lease agreement
was to take effect from October
8, 1993. On October 8, 1993, Maple Leaf executed a lease deed
in respect of the said property in favour of the Embassy of Israel in India, New Delhi for a period of nine years at the rate of Rs.8,78,360/- per
month. It is pointed out that Tejwant Singh and his wife, Surinder Kaur, were
the only two directors of Tej Properties and that in 1988 and 19 one H.S.Sarna
and Prabhjit Singh [one of the sons of Tejwant Singh] were brought in as its
directors. It is submitted that this property really belongs to the contemnors
and that this property alone is sufficient to realise all the monies due to the
persons defrauded by the said contemnors.
The
issues arising from the contentions of the parties are considered hereinafter
topic-wise.
The
nature and ambit of this court's power under Article the 142 of the
constitution.
Article
142(1) of the Constitution of India reads:
"142
Enforcement of decrees and orders of Supreme Court and orders as to descovery,
etc.---(1) The Supreme Court in the exercise of its jurisdiction may pass such
decree or make such order as is necessary for doing complete justice in any
cause or matter pending before it, and any decree so passed or order so made
shall be enforceable throughout the territory of India in such manner as may be
prescribed by or under any law made by Parliament and, until provision in that
behalf is so made, in such manner as the President may by order
prescribe." In re: Vinay Chandra Mishra [1995 (2) S.C.C.584], this Court
dealt with the scope and width of the power of this Court under Article 142.
After referring to the earlier decisions of the Court in extenso, it is held
that "statutory provisions cannot override the constitutional provisions
and Article 142(1) being a constitutional power it cannot be limited or
conditioned by any statutary provision. [Para
48]". lt is also held that "the jurisdiction and powers of this Court
under Article 142 are supplementary in nature and are provided to do complete
justice in any matter....". In other words, the power under Article 142 is
meant to supplement the existing legal framework - to do complete justice
between the parties - and not to supplant it. It is conceived to meet situations
which cannot be effectively and appropriately tackled by the existing
provisions of law. As a matter of fact, we think it advisable to leave this
power undefined and uncatalogued so that it remains elastic enough to be moulded
to suit the given situation. The very fact that this power is conferred only
upon this Court, and on no one else, is itself an assurance that it will be
used with due restraint and circumspection, keeping in view the ultimate object
of doing complete justice between the parties. Now, coming to the facts of the
case before us, the question is not what can be done, but what should be done?
We are of the opinion that even while acting under Article 142 of the
Constitution of India, we ought not to re-open the orders and decisions Sf the
Courts which have become final. We do not think that for doing complete justice
between the parties before us, it is necessary to resort to this extra-ordinary
step. We are saying this in view of the contention urged by S/Sri Salve and Dhavan
that since the D.D.A. has taken over not only the plot but also the
construction raised by Skipper thereon [free from all encumbrances] in addition
to the sum of Rs.15.89 crores [said to have been paid by Skipper towards the
sale consideration of the said plot], the monies required for paying the
persons defrauded should come out of the kitty of D.D.A. It must be remembered
that the plot, the construction raised thereon and the monies already paid
towards the sale consideration of the said plot have all vested absolutely in the
D.D.A. free from all encumbrances under and by virtue of the decision of the
Delhi High Court dated December 21, 1990/January 14, 1991, which decision has
indeed been affirmed by this Court by dismissing the Special Leave Petition
preferred against it. It may not be open to us to ignore the said decisions and
orders, including the orders of this Court, and/or to go behind those
decisions/orders and say that the amount received by D.D.A. toward, sale
consideration from Skipper or the value of the construction raised by Skipper
on the said plot should be made available for paying out the persons defrauded
by Skipper. We must treat those decisions and orders as final and yet devise
ways and means of doing complete justice between the parties before us.
"The
contemnor should not be allowed to enjoy or retain the fruits of his
contempt":
The
principle that a contemnor ought not to be permitted to enjoy and/or keep the
fruits of his contempt is well-settled. In Mohd.Idris v. R.J. Babuji [1985 (1)
S.C.R.598], this Court held clearly that undergoing the punishment for contempt
does not mean that the Court is not entitled to give appropriate directions for
remedying and rectifying the things done in violation of its Orders. The
petitioners therein had given an undertaking to the Bombay High Court. They
acted in breach of it. A learned Single Judge held them guilty of contempt and
imposed a sentence of one month's imprisonment. In addition thereto, the
learned Single Judge made appropriate directions to remedy the breach of
undertaking. It was contended before this Court that the learned Judge was not
justified in giving the aforesaid directions to in additing to punishing the
petitioners for contempt of court. The argument was rejected holding that
"the Single Judge was quite right in giving appropriate directions to
close the breach [of undertaking]".
The
above principle has been applied even in the case of violation of orders of
injunction issued by Civil Courts.
In
Clarke v. Chadburn [1985 (1) All.E.R. 211], Sir Robert Megarry V-C observed:
"I
need not cite authority for the proposition that it is of high importance that
orders of the court should be obeyed. Willful disobedience to an order of the
court is punishable as a contempt of court, and I feel no doubt that such
disobedience may properly be described as being illegal. If by such
disobedience the persons enjoined claim that they have validly effected some
charge in the rights and liabilities of others, I cannot see why it should be
said that although they ere liable to penalties for contempt of court for doing
what they did, nevertheless those acts were validly done. Of course, if an act
is done, it is not undone merely by pointing out that it was done in breach in
law.
If a
meeting is held in breach of an injunction, it cannot be said that the meeting
has not been held.
But
the legal consequences of what has been done in breach of the law may plainly
be very much affected by the illegality. It seems to me on principle that those
who defy a prohibition ought nat to be able to claim that the fruits of their
defiance are good, and not tainted by the illegality that produced them."
To the same effect are the decisions of the Madras and Calcutta High Courts in Century Flour Mills Limited v. S. Suppiah
& Ors. [A.I.R.1975 Madras 270] and Sujit Pal v. Prabir Kumar
Sun [A.I.R.1986 Calcutta 220]. In Century Flour Mill
Limited, it was held by a Full Bench of the Madras High Court that where an act
is done in violation of an order of stay or injunction, it is the duty of the
Court, as a policy, to set the wrong right and not allow the perpetuation of
the wrong-doing. The inherent power of the Court, it was held, is not only
available in such a case, but it is bound to be exercise it to undo the wrong
in the interest of justice. That was a case where a meeting was held contrary
to an order of injunction. The Court refused to recognize that the holding of
the meeting is a legal one.
It put
back the parties in the same position as they stood immediately prior to the
service of the interim order.
In Suraj
Pal, a Division Bench of the Calcutta High Court has taken the same view.
There, the defendant forcibly dispossessed the plaintiff in violation of the
order of injunction and took possession of the property. The Court directed the
restoration of possession to the plaintiff with the aid of police. The Court
observed that no technicality can prevent the Court from doing justice in
exercise of its inherent powers. It held that the object of Rule 2-A of Order
39 will be fulfilled only where such mandatory direction is given for
restoration of possession to the aggrieved party. This was necessary, it
observed, to prevent the abuse of process of law.
There
is no doubt that this salutory rule has to be applied and given effect to by
this Court, if necessary, by over-ruling any procedural or other- technical
objections.
Article
129- is a constitutional power and when exercised in tandem with Article 142,
all such objections should give away. The Court must ensure full justice
between the parties before it.
Claims
of Prabhjot Singh and Prabhjit Singh [Sons of Tejwant Singh]: Prabhjot Singh Sabharwal,
third respondent, stated in his counter-affidavit filed in Interlocutory
Application No.29 of 1996 that he is in no way concerned with the several
companies pointed out by the D.D.A. [as belonging to Tejwant Singh and members
of his family] and that he is interested only in one company, Technological
Park Private Limited, NOIDA. He stated that he and his wife are the directors
of thif company and that it does not deal in any manner with Delhi Development
Authority. He stated that his parents are in no way concerned with
Technological Park Private Limited. He stated "I have separated from my
father and I have no dealings with the Delhi Development Authority". It is
significant to notice that this respondent does not say when was he separated
from his father, whether the said 'separation' is evidenced by writing, nor has
he stated that the said separation - or partition, as it may be called - was
reported to the Income Tax Authorities and was accepted and recorded by them.
The affidavit is quite vague in this respect.
Prabhjit
Singh, fourth respondent, [another son of Tejwant Singh] has filed a separate
counter-affidavit stating that he and his wife are the directors in two
companies, Tej Properties Private Limited and Skipper Properties Private
Limited. Tej Properties is said to be an investment company which is not
carrying on any activity at present. Skipper properties is said to be running
in a loss.
He
stated that he has no connection with the other companies pointed out by the
D.D.A. He admitted the transaction relating to the property at No.3, Aurangzeb
Road, New Delhi but submitted that he is in no way connected with the affairs
of his father or with Skipper Construction Private Limited. It is significant
to notice that this respondent does mot say that he is separated or divided
from his father nor does he explain how he and his wife became directors of Tej
Properties of which his parents were the sole directors at the time of grant of
afore-mentiomed lease.
Lifting
the corporate veil:
In Aron
Salomon v. Salomon & Company Limited (1897 Appeal Cases 22), the House of
Lords had observed, "the company is at law a different person altogether
from the subscriber...; and though it may be that after incorporation the
business is precisely the same as it was before and the same persons are
managers and the same hands received the profits, the company is not in law the
agent of the subscribers or trustee for them. Nor are the subscribers as
members liable, on any shape or form, except to the extent and in the manner
provided by that Act". Since then, however, the Courts have come to
recognize several exceptions to the said rule. While it is not necessary to refer
to all of them, the one relevant to us is "when the corporate personality
is being blatantly used as a cloak for fraud or improper conduct". [Gower:
Modern Company Law - 4th Edn. (1979) at P.137]. Pennington [Company Law - 5th Edn.
1985 at P.53] also states that "here the protection of public interests is
of paramount importance or where the company has been formed to evade
obligations imposed by the law", the court will disregard the corporate
veil. A Professor of Law, S.Ottolenghi in his article "From Peeping Behind
the Corporate Veil, to Ignoring it Completely" says "the concept of
'piercing the veil' in the United States
is much More developed than in the UK.
The motto, which was laid down by Sanborn,J. and cited since then as the law,
is that 'when the notion of legal entity is used to defeat public convenience,
justify wrong, protect fraud, or defend crime, the law will regard the
corporation as an association of persons. The same can be seen in various
European jurisdictions". [(1990) 53 Modern Law Review 338]. Indeed, as far
back 1912, another American Professor L.Maurice Wormser examined the American
decisions on the subject in a brilliantly written article "Piercing the
veil of corporate entity" [published in (1912) XII Columbia Las Review
496] and summarized their central holding in the following words:
"The
various classes of cases where the concept of corporate entity should We
ignored and the veil drawn aside have vow been briefly reviewed. What general
rule, if any, can be laid down? The nearest approximation to generalization
which the present state of the authorities would warrant is this:
When
the conception of corporate entity is employed to defraud creditors, to evade
an existing obligation, to circumvent a statute, to achieve or perpetuate
monopoly, or to protect knavery or crime, the courts will draw aside the web of
entity, will regard the corporate company as an association of live,
up-and-doing, men and women shareholders, and will do justice between real
persons." In Palmer's Company law, this topic discussed in Part- II of Vol-I.
Several situations where the court will disregard the corporate veil are set
out. It would be sufficient for our purposes to quote the eighth exception.
It
runs: "The courts have further shown themselves willing to 'lifting the
veil' where the device of incorporation is used for some illegal or improper
purpose....Where a vendor of land sought to avoid the action for specific
performance by transferring the land in breach of contract to a company he had
formed for the purpose, the court treated the company as a mere 'sham' and made
an order for specific performance against both the vendor and the
company". Similar views have been expressed by all the commentators on the
Company Law which we do not think it necessary to refer.
The
law as stated by Palmer and Gower has been approved by this Court in Tata
Engineering and Locomotive Company Limited v. State of Bihar [1964 (6) S.C.R. 885]. The
following passage form the decision is apposite:
"Gower
has classified seven categories of cases where the veil of a corporate body has
been lifted. But, it would not be possible to evolve a rational consistent and
inflexible principle which can be invoked in determining the question as to
whether the veil of the corporation should be lifted or not. Broadly, where
fraud is intended to be prevented, or trading with enemy is sought to be
defeated, the veil of corporation is lifted by judicial decisions and the
shareholders are held to be 'persons who actually work for the corporation."
In DHN Food Distributors Ltd. & Ors. v. London Borough of Tower Hamlets [
1976 (3) All.E.R. 462 ], the Court of Appeal dealt with a group of companies.
Lord Denning quoted with approval the statement in Gower's Company Law that
"there is evidence of a general tendency to ignore the separate legal
entities of various companies within a group, and to look instead at the
economic entity of the whole group". The learned Master of Rolls observed
that "this group is virtually the same as a partnership in which all the
three companies are partners". He called it a case of
"three-in-one" - and, alternatively, as "one-in-three".
The
concept of corporate entity was evolved to encourage and promote trade and commerce
: but not to commit illegalities or to defraud people. Where, therefore, the
corporate character is employed for the purpose of committing illegality or for
defrauding others, the court would ignore the corporate character and will look
at the reality behind the corporate veil so as to enable it to pass appropriate
orders to do justice between the parties concerned. The fact that Tejwant Singh
and members of his family have created several corporate bodies does not
prevent this Court from treating all of them as one entity belonging to and
controlled by Tejwant Singh and family if it is found that these corporate
bodies are merely cloaks behind which lurks Tejwant Singh and/or members of his
family and that the device of incorporation was really a Ploy adopted for
committing illegalities and/or to defraud people.
The
concept of resulting trust and equity:
In
Attorney General for India v. Amratlal Prajivandas [1994 (5) S.C.C.54], a
Constitution Bench of this Court comprising nine-Judges including one of us (B.P.Jeevan
Reddy,J.) dealt with the challenge to the validity of the definition of
"illegally acquired properties" in clause (c) of Section 3(1) of
Smugglers and Foreign Exchange Manipulators [Forfeiture of Property] Act, 1976
[SAFEMA].
The
said Act provided that where a person earned properties by smuggling or other
illegal activities, all such properties, whether standing in his name or in the
name of his relations or associates will be forfeited to the State.
while
dealing with the justification for such a radical provision, this Court held:
"So
far as justification of such a provision is concerned. there is enough and
more. After all, all these illegally acquired properties are earned and
acquired in ways illegal and corrupt - at the cost of the people and the State.
The State is deprived of its legitimate revenue to that extent. These
properties must justly go back where they belong to the State.
What
we are saying is nothing new or heretical. Witness the facts and ratio of a
recent decision of the Privy Council in Attorney General for Hang Kong v. Reid
[1993 (3) WLR 1143]. The respondent, Reid, was a Crown-prosecutor in Hong Kong.
He took bribes as an inducement to suppress certain criminal prosecutions and
with those monies, acquired properties in New Zealand, two of which were held
in the name of himself and his wife and the third in the name of his solicitor.
He was
found guilty of the offence of bribe-taking and sentenced by a criminal court.
The Administration of Hong Kong claimed that the said properties in New Zealand
sere held by the owners thereof as constructive trustees for the Crown and must
be made over to the Crown.
The
Privy Council upheld this claim overruling the New Zealand Court of Appeals.
Lord Templeman, delivering the opinion of the Judicial Committee, based his
conclusion on the simple ground that any benefit obtained by a fiduciary
through a breach of duty belongs in equity to the beneficiary. It is held that
a gift accepted by a person in a fiduciary position as an incentive for his
breach of duty constituted a bribe and, although in law it belonged to the
fiduciary, in equity he not only became a debtor for the amount of the bribe to
the person to whom the duty was owed but he also held the bribe and any
property acquired therewith on constructive trust for that person.
It is
held further that if the value of the property representing the bribe
depreciated the fiduciary had to pay to the injured person the difference
between that value and the initial amount of the bribe, and if the property
increased in value the fiduciary was not entitled to retain the excess since
equity would not allow him to make any profit from his breach of duty.
Accordingly, it is held that tn the extent that they represented bribes
received by the first respondent, the New Zealand properties were held in trust
for the Crown, and the Crown had an equitable interest therein. The learned Law
Lord observed further that if the theory of constructive trust is not applied
and properties interdicted when available, the properties 'can be sold and the
proceeds whisked away to some Shangri La which hides bribes and other corrupt
moneys in numbered bank accounts; - to which we are tempted to add - one can
understand the immorality of the Bankers who maintained numbered accounts but
it is difficult to understand the amorality of the Governments and their laws
which sanction such practices - in effect encouraging them. The ratio of this
decision applies equally where a person acquires properties by violating the
law and at the expense of and to the detriment of the State and its revenues
where an enactment provides for such a course, even if the fiduciary
relationship referred to in Reid is not present. It may be seen that the
concept employed in Reid was a common law concept, whereas here is a case of an
express statutory provision providing for such forfeiture. May we say in
conclusion that 'the interests of society are paramount to individual interests
and the two must be brought into just and harmonious relation. A mere property
career is not the final destiny of mankind, if progress is to be the law of the
future as it has been of the past'. (Lewis Henry Morgan : Ancient
Society)" In Reid, the Privy Council made the following observations which
we find of crucial relevance to our present-day society:
"A
bribe is a gift accepted by a fiduciary as an inducement to him to betray his
trust. A secret benefit, which may or may not constitute a bribe is a benefit
which the fiduciary derives from trust property or obtains from knowledge which
he acquires in the course, of acting as a fiduciary ....Bribery is an evil
practice which threatens the foundations of any civilised society..... Where
bribes are accepted by a trustee, servant, agent or other fiduciary, loss and
damage are caused to the beneficiaries, master or principal whose interests
have been betrayed.......When a bribe is offered and accepted in money or in
kind, the money or property constituting the bribe belongs in law to the
recipient. Money paid to the false fiduciary belongs to him.
The
legal estate in freehold property conveyed to the false fiduciary by way of
bribe vests in him. Equity however which acts in personam insists that it is
unconscionable for a fiduciary to obtain and retain a benefit in breach of
duty. The provider of a bribe cannot recover it because he committed a criminal
offence when he paid the bribe. The false fiduciary who received the bribe in
breach of duty must pay and account for the bribe to the person to whom that
duty was owed. In the present case as soon as Mr.Reid received a bribe in breach
of the duties he owed to the Government of Hong Kong, he became a debtor in
equity to the Crown for the amount of that bribe........... As soon as the
bribe was received, whether in cash or in kind, the false fiduciary held the
bribe on a constructive trust for the person injured........ If the property
representing the bribe exceeds the original bridge value, the fiduciary cannot
retain the benefit of the increase in value which he obtained solely as a
result of his branch of duty..... When a bribe is accepted by a fiduciary in
breach of his duty then he holds that bribe in trust for the person to whom the
duty was owed. If the property representing the bribe decreases in value the
fiduciary must pay the difference between that value and the initial amount of
the bribe because he should not have accepted the bribe or incurred the risk of
loss. If the property increases in vales, the fiduciary is not entitled to any
surplus in excess of the initial value of the bribe because he is not allowed
by any means to make a profit out of a breach of duty." We respectfully
agree with each and every statement contained in the above extract. MAY WE SAY
IN PARENTHESES that a law providing for forfeiture of properties acquired by
holders of 'public officer" [ including the offices/posts in the public
sector corporations] by indulging in corrupt and illegal acts and deals, is a
crying necessity in the present state of our society. The law must extend not
only to - as does SAFEMA - properties acquired in the name of the holder of
such office but also to properties held in the names of his spouse, children or
other relatives and associates. Once it is proved that the holder of such
office has indulged in corrupt acts all such properties should be attached
forthwith. The law should place the burden of proving that the attached
properties were not acquired with the aid of monies/properties received in the
course of corrupt deals upon the holder of that property as does SAFEMA whose
validity has already been upheld by this court in the aforesaid decision of the
larger Constitution Bench.
Such a
law has become an absolute necessity, if the canker of corruption is not to
prove the death-khell of this nation. According to several perceptive
observers, indeed, it has already reached near-fatal dimensions. It is for the
parliament to act in this matter, if they really mean business. It may be
recalled that in this very case, Justice Chinnappa Reddy Commission [appointed
to investigate into the conduct of the officials of the D.D.A. in handing over
the possession of the plot to skipper without receiving the full consideration
and also in conniving at the construction thereon] has reported that several
top officials of the D.D.A. have indeed connived at and acted hand in glove
with Skipper to confer illegitimate gain upon the latter. On the basis of the
said report. disciplinary enquiries have been ordered against certain officials
which are now pending. for the reason that the enquiries are pending. For the
reason that the enquiries are pending. we desist form referring to the findings
of the commission except to broadly mention its conclusion.
We are
of the opinion that the holding in Amratlal Prajivendas and in Reid should
guide us while exercising the extra-ordinary powers of this Court while acting
under the said Article form making appropriate orders for doing complete
justice between the parties*. The fiduciary relationship may not exist in the
present case nor is it as case of a holder of public office, yet if it is found
that someone has acquired properties by defrauding the people and if it is
found that the persons defrauded should be restored to the position in which
they would have been but for the said fraud, the court can make all necessary
orders. This is what equity means and in India the Courts are not only courts
of law but also courts of equity.
D.D.A.s
responsibility to reimuburse the purchasers:
S/Shri
Bobde and Dave, learned counsel for the purchasers, countended that inasmuch as
several top officials of the D.D.A had colluded with Skipper and connived at
their wrong doing, the D.D.A. must be held equally liable to reimburse the
purchasers. Indeed, their submission is that D.D.A. stood by and took no action
whatsoever while Skipper was issuing repeated ------------------------------------------------------------
*In other words, while action under Article 142 of the Constitution, this Court
will respect a statue, the absence of a statue or statutory provision will not
inhibit her to make orders necessary for doing complete justice between the
parties.
advertisements
[even after January 29, 1991, in open and brazen defiance of this Court's
Orders] and, therefore, it must be made equally liable to reimburse the said
purchasers in full. We find it difficult to agree. Firstly, the said contention
is not factually correct. As has been pointed out hereinabove, son after the
publication of an advertisement by Skipper in the newspapers inviting the
citizens at large to come and purchase the space in the proposed building on
February 4, 1991, the D.D.A. came forward with a warning notice published in
all leading national dailies advising citizens not to purchase space in the
building in view of the orders of this Court. It is true that even thereafter
Skipper has been issuing similar advertisements but it cannot be said with any
reasonableness that D.D.A. should have responded to each such advertisement by
publishing a warning. It would have done that but it cannot be faulted for not
doing it. It is, therefore, factually incorrect to say that D.D.A. stood by and
allowed Skipper to defroud the people by issuing advertisements. Secondly, even
if there is any collusion between the officials of the D.D.A. and Skipper as
alleged by the learned counsel, the question still arises whether D.D.A. be
held bound by such actions of its officials acting beyond their authority,
indeed, acting adverse to the interests of D.D.A. intentionally. We are not
suggesting nor are we laying down the proposition that the D.D.A. is not bound
by the acts and deeds of its officials but are only saying that where the acts
and deeds of the officials are not only beyond their authority but are done
with a malafide intent, it may not be just end fair to bind D.D.A. with such malafide
acts and deeds. Be that as it may, it is not necessary for the purpose of this
case to pursue this line of enquiry further or to express any definite opinion
thereon.
What
are the directions called for in this matter? In the light of the factual and
legal position adumbrated hereinabove, the question arises what are the
appropriate directions to be made in the matter? In other words, the question
is what directions and orders are called for by this Court acting under its
contempt jurisdiction under Article 129 and its extraordinary jurisdiction
under Article 142 to do complete justice between the parties before us? On one
hand, the position is that the pre-January 29, 1991 purchasers have to be
reimbursed in full which means that they should also be paid interest at the
appropriate rate on the amounts advanced by them to Skipper.
[They
have only been paid the principal amount in the sum of Rs.13,27,37,561.59p
pursuant to the Report of Justice Lahoti Commission.] Secondly, the
post-January 29, 1991 purchasers have also to be reimbursed in full. According
to Skipper, the amounts collected from post January 29, 1991 purchasers is in
the region of Rupees eleven crores. The counsel for the petitioners, however,
say that some of them are bogus purchasers set up by Skipper itself to defeat
genuine claims. As against these claims, only an amount of about Rupees six crores
is now available which is kept in fixed depositing in nationalized banks. The
balance has to be realized. In our opinion, as at present advised, it would be
enough for the above purpose if we proceed against one property, viz., No.30, Aurangzeb Road, New Delhi, which appears to us, on the facts and material placed
before us, to belong wholly and exclusively to Tejwant Singh and his wife. We
ignore the corporate veil and we ignore the fact that as present their son, Prabhjit
Singh, and his wife are the directors. [We have already held that Prabhjit
Singh has not explained in his affidavit how did he and his wife became
directors in the place of his parents.] Tej Properties private Limited, which
is said to own the said property, was intially having only two directors, viz.,
Tejwant Singh and his wife, Surinder Kaur. It is Tejwant Singh who executed the
lease deed in respect of the said property in favour of 'Maple Leaf' on October 1, 1993, effective from October 8, 1993. On October 8, ]993 itself, Maple
Leaf executed a lease deed in respect of the said property in favour of an
Embassy of Israel in India, New Delhi for a period of nine years at a rent of Rs.8,38,360/- per
month. It is crystal clear that the property belongs to Tejwant Singh and the
corporate veil and the change of directorships are all mere devices to screen
the said property and its income from their creditors including the purchasers
aforesaid. Tej Properties Private Limited is nothing but a fig-leaf and that
too an inadequate one - to cover up the reality. The reality is Tejwant Singh,
the contemner, who is the author of all these deals and devices.
The
transfer of share-holding, if any, between the father and the son [and their
respective wives] must also be treated as a sham transaction. The above course
appears tastified and necessary looked at from any angle, viz.,
(a) that
the contemnors should not be allowed to enjoy or retain the fruits pf their
contempt;
(b)
the interests of justice, which call for the lifting of the corporate veil -
the said- property is in truth and effect the property of Tejwant Singh and
members of his family and must be available to satisfy the claims of the
persons defrauded by him;
(c)
that while acting under Article 142 of the Constitution, this Court must do
complete justice between the parties and for that purpose, it is necessary to
ensure that a person who has defrauded a large number of persons by issuing
advertisements in the leading newspapers published from the capital inviting
people to come and purchase space in the said building in open and brazen
violation of clear and specific orders of this Court should not be allowed to
benefit from his fraud and/or contemptuous acts.
Accordingly,
it is directed that:
(1) the
property at No.3, Aurangzeb
Road, New Delhi, shall be attached, if not already
attached - and if it has already been attached, it shall continue to be under
attachment;
(2) the
Embassy of Israel in India, New
Delhi, the lessee of
the said property, is requested to deposit the monthly rent payable in respect
of the said building in this Court with effect from the date of receipt of a
copy of this order and continue to deposit the same until further orders. Such
deposit in Court shall discharge- the Embassy of its obligation to pay rent to
'Maple Leaf', its landlord.
(3) Tejwant
Singh and his wife, Surinder Kaur, are directed to deposit in this Court a sum
of Rupees ten crores within two months from today. In default, steps will be
taken to sell the property at No.3, Aurangzeb Road, New
Delhi by inviting
tenders from the public. The said amount of Rupees ten crores is tentatively
arrived at as the amount required to reimburse the pre-January 29, 1991
purchasers in full, as explained hereinabove, and also to reimburse the post- January 29, 1991 purchasers in full. [This shall not
be treated as the final figure required in this behalf.] While fixing this
amount, we have taken into account the fact that about Rupees six crores is now
available with this Court as stated supra;
(4) the
attachment of properties belonging to Tejwant Singh, his wife and children,
already effected, including the properties mentioned in the application,
I.A.No.29 of 1996, filed by the D.D.A. shall continue to be in force pending
further orders. It is, however, open to any of them to come forward with a
proposal to sell any of those properties and if this Court is satisfied about
the bonafides of the deal, the attachment will be lifted on condition that the confederation
so received is deposited into this Court. It is obvious that any such deposit
will be treated as a deposit towards the direction regarding deposit of Rupees
ten crores contained in Direction No.3 above;
(5)
since it is necessary to ascertain the persons who have paid amounts to Skipper
after January 29, 1991 for purchasing the space in the said building, and to
exclude the claims of non-genuine persons, we appoint Sri O.Chinnappa Reddy, a
former Judge of this Court, as the one- man Commission to ascertain the number
and identity of the persons who have purchased the space in the building being
raised by Skipper after January 29, 1991 and also to determine the amounts paid
by each of them. The Commission is requested to submit its Report within a
period of six months, as far as possible. The remuneration and the expenses of
Sri Justice O.Chinnappa Reddy will be borne entirely by the D.D.A. out of the
funds now lying with it, as per his terms.
Ordered
accordingly.
Before
parting with this case, we feel impelled to make a few observations. What
happened in this case is illustrative of what is happening in our country on a
fairly wide scale in diverse forms. Some Persons in the upper strata [which
means the rich and the influential class of the society] have made the
'property career' the sole aim of their life. The means have become irrelevant
- in a land where its greatest son born in this century said "means are
more important than the ends". A sense of bravado prevails;
everything
can be managed; every authority and every institution can be managed. All it
takes is to "tackle" or "manage" it in an appropriate
manner. They have developed an utter disregard for law - nay, a contempt for
it; the feeling that law is meant for lesser mortals and not for them. The
courts in the country have been trying to combat this trend, with some success
as the recent events show. But how many matters can we handle. How many more of
such matters are still there? The real question is how to swing the polity into
action, a polity which has become indolent and soft in its vitals? Can the
courts alone do it? Even so, to what extent, in the prevailing state of
affairs? Not that we wish to launch upon a diatribe against anyone in
particular but Judges of this Court are also permitted, we presume, to ask in
anguish, "what have we made of our country in less than fifty years"?
Where has the respect and regard for lag gone? And who is responsible for it?
On this occasion, we must refer to the mechanical manner in which some of the
courts have been granting interim orders - injunctions and stay orders without
realizing the harm such mechanical orders cause to the other side and in some
cases to public interest. It is no answer to say that "let us make the
order and if the other side is aggrieved, let it come and apply for vacating
it". With respect, this is not a correct attitude. Before making the
order, the court must be satisfied that it is a case which calls for such an
order. This obligation cannot be jettisoned and the onus placed upon the
respondents/defendants to apply for vacating it. Take this very case: a person
purchases a property in auction. He does not pay as per the stipulated terms.
He obtains a series of extensions. Still he doesn't deposit and when the vendor
proposes to cancel the allotment, the court is approached and it stays the
cancellation. The vendor [D.D.A.] applies for vacating it but nothing happens
except repeated adjournments. This has happened more than once. We find that as
and when Skipper was not able to manage the D.D.A., he approached the court and
it provided him a breather. He then gets time to manage the D.D.A.. This went
on upto the end of 1990 when fortunately the Delhi High Court came with a tonne
of bricks upon Skipper and which order was affirmed two years' later by this
Court.
Ultimately,
no doubt, Skipper has met its nemesis but meanwhile hundreds of persons are
cheated out of their hard earned monies; their dreams of owning a flat are
shattered rudely.
All
this means that each of us in this land should wake up to his duty and try to
live up to it. We do not think we need say more.
List
the matter for further orders on July 16, 1996.
*A
copy of this Judgment may be communicated to Mr.Justice O.Chinnappa Reddy, a
former Judge of this Court, at the address, Plot No.209, Jubilee Hills
Cooperative Housing Society, Jubilee Hills, Hyderabad - 500033 within three days.
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